Consumer Credit

Viscount Younger of Leckie: My honourable friend the Minister for Consumer Affairs has made the following Statement.
	Today I am making two key consumer credit announcements.
	First, I am publishing the Bristol University report on the impact of a cap on the total cost of credit and our Government response to that report.
	Secondly, together with the Economic Secretary to the Treasury, I am also publishing the Government consultation on the planned transfer of consumer credit regulation to the Financial Conduct Authority (FCA) from April 2014.
	This Government have a clear vision for the consumer credit market: we want to see firms meeting high standards, lending responsibly, and offering competitively designed and priced products that meet consumers' needs. We want to see consumers borrowing sensibly, able to exercise choice and having confidence in the system, secure in the knowledge that they can expect to be treated fairly by firms and that, if things do go wrong, the regulator will step in swiftly and decisively to put it right.
	But the consumer credit market today is not functioning well. The National Audit Office recently estimated that there was £450 million of unaddressed consumer detriment in the market last year and concluded that the current regulatory regime under the Office of Fair Trading lacks the capacity and powers to tackle consumer detriment effectively.
	There are particular problem sectors. The Bristol report, and the OFT's final report on payday compliance, also being published today, clearly set out that the high- cost credit market, and most particularly the payday lending market, is not functioning well in consumers' interests. Too many firms are not complying with the legislation and guidance in place. There are concerns that the business model of the payday industry itself may be flawed and competition may not be working effectively. As a result, consumers are suffering serious detriment. Both reports have identified clear evidence of problems in the way in which lenders advertise and market their payday loans to consumers, provide the loans to consumers and manage their relationship with customers once they have a loan.
	The Government are deeply concerned about the evidence and scale of consumer detriment identified and the evidence of widespread non- compliance by payday lenders.
	Our announcement today that we plan to transfer the regulation of consumer credit to the FCA in April 2014 is part of the solution to make sure that the consumer credit market functions better for consumers and for lenders. The transfer will, for the first time, bring conduct of business regulation under a single financial services regulator. This will end confusion for consumers, remove unnecessary duplication for many firms, and create a single strategic regulatory view across retail financial services. The FCA will have tough, responsive and dynamic powers to tackle emerging problems in credit markets quickly and effectively from April 2014.
	While the Government are confident that the new regulatory regime that will be in place from April 2014 will deliver better outcomes for consumers in the medium and long term, it is vital that consumers are adequately protected through the period leading up to the transfer. The evidence from the Bristol report and the OFT final report on payday lending demonstrate that urgent intervention is required in the high cost credit market, in particular in the payday lending sector. That is why we have set out in our Government response to the Bristol report how we intend to work with the current and future consumer credit regulators to ensure a strong and co-ordinated response to the problems identified, now, as well as from April 2014.
	Today I am announcing that:
	the OFT will clamp down now on irresponsible practices and in some cases blatant non-compliance by payday lenders;the OFT is consulting on a provisional decision to refer the payday lending market to the Competition Commission;the Government will begin immediate work with industry and regulators to clamp down on advertising of payday loans;the Government are strongly pressing for the industry to improve compliance with payday lending codes and to put in place new provisions within the codes in specific areas of concern, notably Continuous Payment Authority; andthe FSA have committed to prioritise action on payday lending as soon as they take on the regulatory responsibility in April 2014. During the rest of this year, they will consider whether there are gaps in the regulation of payday lending that need to be addressed by the FCA from April 2014 and will turn existing OFT guidance into rules that are binding on firms.
	I am not announcing a cap on the total cost of credit. The Government asked Bristol University to consider the impact of such a cap. This Government's view is that a cap would not be the best solution now to the problems that have been identified by the Bristol report and the OFT payday compliance review. The Bristol report's findings indicate that such a cap could reduce access to credit, reduce the supply of credit and weaken competition. It could also lead lenders to shift more to charges which fall outside the cap and to optional fees which are generally less transparent to consumers. However, the Government recognise that a cap might be appropriate at some point in the future. This is why we have provided the FCA with specific powers to impose a cap on the cost and duration of credit, should they deem it appropriate once they take over the responsibility for consumer credit in April 2014.
	This Government believe that tough enforcement and compliance action today, combined with a move to a new consumer credit regulatory regime that is equipped to deliver more robust consumer protection in the future, will do much to address the key concerns in this market. It will weed out rogue lenders, ensure that consumers have tools to make the right borrowing decisions for them, and provide important protection and help for consumers who find themselves in difficulty.

EU: Justice and Home Affairs

Lord McNally: The Justice and Home Affairs (JHA) Council is due to be held on 7 and 8 March in Brussels. My right honourable friend the Home Secretary (Theresa May) and the Lord Chancellor and Secretary of State for Justice (Chris Grayling) intend to attend on behalf of the United Kingdom. As the provisional agenda stands, the following items will be discussed.
	The council will begin in mixed committee with Norway, Iceland, Liechtenstein and Switzerland (non-EU Schengen states) where there is expected to be agreement on a proposed date of 9 April 2013 for the entry into operation of the European central second generation Schengen Information System (SIS II). The UK supports this date and continues as scheduled for its integration into SIS II in the fourth quarter of 2014.
	There will be a discussion on the accession of Romania and Bulgaria to the Schengen acquis. The UK will not vote on this item since the measure builds on the part of the Schengen agreement in which the UK does not participate.
	There will be two items under Schengen governance, collectively known as the Schengen package; the temporary reintroduction of internal border controls in exceptional circumstances (the Schengen Borders Code (SBC) amendment) and political agreement on the Schengen evaluation mechanism (SEM). On SEM, the council position agreed in June 2012 secures all UK negotiating objectives but it will not be agreed until a deal is reached on the SBC. The SBC file is currently in trilogue between council and the European Parliament. The UK will not vote on this item since the measure builds on the part of the Schengen agreement in which the UK does not participate. In addition, we have yet to receive compromise texts that we can officially send to the parliamentary committees.
	The European Commission will present legislative proposals for a future EU entry-exit system alongside a registered traveller programme under the banner of "smart borders". Each of these initiatives would apply only to third country nationals crossing the external Schengen land, air and sea borders. The entry-exit system will register electronically the dates of entry and exit of all third country nationals admitted for a short stay into the Schengen area. The registered traveller programme envisages that frequent third country travellers, who have undergone successful pre-screening, would benefit from a facilitated border check into the Schengen area. The UK will not be able to take part in either component of the smart borders measures as they build on the part of the Schengen agreement in which the UK does not participate. However, there is value in the successful introduction of an entry-exit system that would enable better measurement and control of illegal migration.
	Over lunch there will be a discussion on expected pressures arising from migratory flows over the next year, with Ministers discussing the EU's approach to dealing with these pressures. The Government believe that any cohesive effort to deal with migratory pressures should include proper safeguards in relation to tackling illegal immigration and action to combat abuse of free movement rights.
	During the main council the EU Counter-Terrorism Co-ordinator, Gilles de Kerchove, will present a paper on the security situation in the Sahel and the Maghreb, and the implications for EU internal security. The UK will argue that the threat needs both an international and regional response and will note that we have supported the UN Security Council Resolutions on Mali, as well as regional leadership from the Economic Community of West African States (ECOWAS) and the African Union, and EU training to help rebuild the Malian army.
	Finally, the Commission will debrief on January's high level radicalisation awareness network (RAN) conference entitled "Empowering local actors to counter violent extremism". The RAN is a network across different disciplines of frontline counter-radicalisation work (RAN health, RAN police) which brings together practitioners to share knowledge and experience. The Irish presidency has indicated that it will seek adoption of council conclusions on radicalisation and recruitment at June's JHA Council.
	The justice day will begin with an orientation debate on the general data protection regulation. The presidency will report on discussions at the council working group on adopting a risk-based approach towards data protection. There may also be some discussion on providing member states with flexibility as regards the public sector.
	The Commission will present their new proposal on the protection of the euro and other currencies against counterfeiting by criminal law. There will also be an orientation debate. This proposal builds on a framework decision, which would be repealed and replaced, aimed at deterring counterfeiting by further approximation of criminal law, including enhanced penalties. The directive was published on 6 February and the UK's JHA opt-in protocol will apply.
	The presidency will also seek to gain a general approach to some remaining issues and additional recitals on the proposed regulation on mutual recognition of protection measures in civil matters. A partial general approach was achieved at the December council. The Government support the overall policy aim of the proposal and have opted into it. The proposal has yet to clear scrutiny in either House.